• Audere Research

Foreign Exchange Analysis ~ 22 August 2022

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GB Pound

The Pound underperformed against majors following double-digit inflation on Wednesday.


Movements

GBPUSD started the week at 1.2104 losing 0.63% on Monday’s session. Losses were reversed on Tuesday touching a high of 1.2119. The pair dropped below 1.21 on Wednesday and 1.18 by Friday. The pair closed the week at 1.1790 for a weekly loss of -2.59%.


GBPEUR opened at 1.1829 breaking above 1.19 on Tuesday. Gains were short-lived as the pair dropped in the latter half of the week touching a low of 1.1745. The pair closed the week at 1.1792 for a weekly loss of -0.31%.


Movement rationale

GBPUSD moved down 0.63% on Monday as market participants started the week in a risk-off mood. These losses were partially reversed on Tuesday’s session on the back of UK unemployment data. While unemployment is unchanged from the previous month, momentum in new jobs is beginning to slow with only 160,000 jobs added in the last 3 months. Nevertheless, jobs data was enough to support GBPUSD and GBPEUR on Tuesday. This however was short-lived as sterling posted back-to-back losses against the dollar and euro for the remainder of the week. On Wednesday CPI touched 10.1% beating expectations. While this may force the BoE into further rate hikes, recessionary headwinds put downward pressure on the pound. Market’s price in a 30% likelihood of a 75bp rate hike in September with 200bp forecasted before March 2023. GBPUSD dropped below 1.19 and GBPEUR below 1.18 on Friday due to poor retail sales and consumer confidence. Retail sales just missed predictions at -3.4% YoY and Consumer confidence dropped to -44, the worst print on record. Diminishing growth and persistent inflation will likely continue to weigh on the pound over the coming weeks.


Week ahead

A quiet economic calendar may mean GBP price action will be dictated by market risk appetite.


Calendar

Tuesday 9.30am | Composite PMI


US Dollar

As fears of a global recession increased, the safe-haven greenback performed well last week.


Movements

EURUSD opened at 1.0232 dropping 0.96% on Monday. Small gains on Tuesday and Wednesday caused a brief break above 1.02 before another 0.9% loss on Thursday. The pair touched a low of 1.0031 on Friday before closing the week below parity at 0.9997 for a weekly loss of -2.3%.


GBPUSD started the week at 1.2104 losing 0.63% on Monday’s session. Losses were reversed on Tuesday touching a high of 1.2119. The pair dropped below 1.21 on Wednesday, 1.2 on Thursday, and 1.18 on Friday. The pair closed the week at 1.1790 for a weekly loss of -2.59%.


Movement rationale

EURUSD lost just under 1% in Monday’s session as risk appetite diminished. On Tuesday, US retail sales data and the FOMC minutes were published which weighed on the greenback. First, US retail sales flattened from 0.8% to 0.0% in July, indicating an economic slowdown is coming to fruition. Second, despite stating rates would be elevated “for some time”, the FOMC minutes were perceived as slightly dovish which caused the Dollar to make small losses against GBP and EUR on Tuesday. USD performed well in the latter half of the week, gaining 0.9% on GBP and EUR on Thursday as Fed members Bullard and George took a hawkish tone in support of elevated interest rates. GBPUSD and EURUSD went into the weekend posting losses as markets reassess global growth.


Week ahead

Market participants will use the Jackson Hole Symposium to shed light on the US hiking cycle. Expect volatility if Fed members take a dovish stance.


Calendar

Tuesday 2.45pm | Composite PMI

Wednesday 1.30pm | Durable Goods

Thursday 1.30 | GDP Q2

Thursday-Saturday | Jackson Hole Symposium


Euro

Demand for the Euro lessened last week on the back of GDP and Inflation data.


Movements

EURUSD opened at 1.0232 dropping 0.96% on Monday. Small gains on Tuesday and Wednesday briefly broke above 1.02 before another 0.9% loss on Thursday. The pair touched a low of 1.0031 on Friday before closing the week below parity at 0.9997 for a weekly loss of -2.3%.


GBPEUR opened at 1.1829 breaking above 1.19 on Tuesday. Gains were short-lived as the pair dropped in the latter half of the week touching a low of 1.1745. The pair closed the week at 1.1792 for a weekly loss of -0.31%.


Movement rationale

The euro lost ground against majors on Monday as energy pressures intensified. Gas futures rose 7% causing EURUSD to drop to a low of 1.0122. On Tuesday, economic sentiment data missed expectations at -54.9 (consensus -51.1) largely driven by fears over the Russian energy supply in H2 2022. The revised Q2 GDP data down from 4% to 3.9% was enough to support the euro which gained on the dollar and pound on Wednesday. These gains were short-lived as Thursday saw EURUSD drop back below 1.01. Although eurozone inflation data was unchanged from the previous month at 8.9%, European gas futures rose to record highs (€241 per megawatt hour). EURUSD went into the weekend hovering around parity. As the energy crisis worsens and the US-EU interest rate differential continues to spread, there is further downward pressure on the euro. However, demand for the euro at 1.00 makes parity a significant support level for EURUSD.


Week ahead

Apart from Confidence and PMI data on Tuesday, the euro will likely be influenced by any developments to the ongoing energy crisis.


Calendar

Tuesday 9am | Composite PMI 3pm | Consumer Confidence



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